Experts deny rumors of Lotte’s liquidity crisis amid stock declines

Shares in Lotte Group have fallen to record lows on rumors of a liquidity crisis, but experts claim these concerns are exaggerated and highlight the need for better debt control.

Shares of the holding company closed at 20,550 won ($14.80) on Monday, down 6.6 percent from the previous day, while Lotte Chemical saw the sharpest decline among its subsidiaries, falling 10.22 percent to 65,900 won, making its market capitalization 2,200 won. It reduced it to 82 trillion won. 15 year low

Both stocks hit 52-week intraday lows during the session; The holding company reached 20,050 won, while Lotte Chemical fell to 64,800 won. Lotte Shopping also reached a 52-week low of 56,100 won.

The declines in stock prices followed rumors circulating online and in financial circles that the Lotte Group was facing a liquidity crisis and would announce a moratorium next month with a 50 percent reduction in its workforce.

As share prices continued to fall, Lotte Group issued a statement denying the rumors and warning of possible legal action.

The company admitted it had implemented emergency measures at struggling subsidiaries, including Lotte Chemical and Duty Free, and offered voluntary retirements to improve workforce productivity.

The statement said, “However, rumors of a liquidity crisis are completely unfounded. We are considering taking legal action, including identifying the sources of these rumors.”

Despite such efforts to debunk the rumors, doubts about the profitability of the company and its major subsidiaries persisted, hindering a recovery in prices. Stock prices showed a slight rebound on Tuesday; While Lotte Group’s shares increased by 0.7 percent, Lotte Chemical’s share price increased by 2.3 percent.

Market analysts generally agree that Lotte and its subsidiaries do not face an immediate liquidity crisis, but emphasize that debt control remains necessary.

“The sharp decline in stock prices seems to be an overreaction caused by noise,” said Meritz Securities analyst Roh Woo-ho. “However, signs of a prolonged petrochemical downturn coupled with Lotte Chemical’s earnings outlook and financial stability require stronger risk management, including creditworthiness.”

KB Securities analyst Chun Woo-je also rejected claims of a liquidity crisis and noted that Lotte Chemical’s debt increased temporarily due to the peak of capital expenditures in 2023-2024.

“Lotte Chemical’s fundamentals point to healthier cash flows than expected,” Chun said. “We estimate the debt ratio for the year to be 78.6 percent, which is not very high. The reduction in capex and the annual value “With its loss at 1.3 trillion won, liquidity concerns seem premature.”

Reports say that the rumored debt of 39 trillion won refers to the total debt of Lotte Group’s 11 listed subsidiaries, including loans, trade payables, and overdue amounts. Net debt is much lower after accounting for cash and short-term financial assets.

IBK Securities analyst Lee Dong-wook also confirmed that Lotte Group’s debt levels remain manageable.

“Lotte Chemical’s net debt-to-equity ratio rose to 36.1 percent in the third quarter. While this is higher than the sub-20 percent levels seen at most companies, Lotte Chemical has cash deposits of 3.6 trillion won and estimated Lee stated that this year’s equity ratio is at a relatively low level of 78.6 percent.

“Given that the net debt-to-equity ratio of Kospi 200 energy and chemical stocks is 62 percent and 105.2 percent, respectively, concerns about a liquidity crisis seem exaggerated,” Lee added.